Company Reports

Narrow-moat Halma’s 2024 trading update was light in quantitative detail, yet confirmed the business is on track to deliver between GBP 376 million and GBP 393.5 million in profit before tax. We’re maintaining our GBP 384 million forecast, which translates into 6% growth for the full year and we also retain our GBX 2,310 fair value estimate. Shares are currently fairly valued.

Halma’s industry-leading profitability is underpinned by acquiring small to medium-size businesses in niche markets with relatively small total addressable markets. Consequently, Halma enjoys a leading market share in many of the group’s product categories and may only have a handful of competitors in other areas. We believe the group’s strong emphasis on research and development, which accounts for 5% of sales, will allow Halma to maintain its market position through a combination of new product releases and product differentiation.

Narrow-moat Halma reported 5% organic revenue growth for the first half of its financial year, which is tracking in line with our expectations. Bolt-on acquisitions added a further 5% to top-line growth, removing any concerns about the acquisition pipeline weakening as the business grows. The safety segment was the standout, benefiting from price increases and supply chain constraints that boosted sales (against a high comparable) and profitability. Management expects full-year profit before tax to be approximately GBP 389 million, broadly in line with our forecasts. The shares are trading 4% higher but remain slightly undervalued relative to our GBX 2,310 fair value estimate, which we maintain.

We are comfortable with our current estimates following narrow-moat Halma’s first-half trading update, which reiterated its full-year guidance of “good” organic revenue growth. While the update was light in quantitative detail, management indicated that order intake is ahead of the prior year, which we anticipate will support mid-single-digit organic revenue growth for the full year, having entered the year with a healthy order book. We maintain our GBX 2,310 fair value estimate and view shares as fairly valued.

Narrow-moat Halma’s pricing power in products, which benefit from structural growth drivers was fully evident during fiscal 2023. Organic revenue growth of 10% was broad-based across operating segments, slightly ahead of our expectations. Bolt-on acquisitions remain a key component of Halma’s strategy, adding a further 3% growth (net of disposals) to its sales growth during the financial year. Supply chain issues within the group’s safety segment were the main cause for the decline in its profit-before-tax margin by 120 basis points to 19.5%, below our 20.2% estimate. Management guided for the profit-before-tax margin to increase to approximately 20% during fiscal 2024, which we expect will be likely given the wider availability of components. We reiterate our GBX 2,310 and view shares as fairly valued.

Halma’s industry-leading profitability is underpinned by acquiring small to medium-size businesses in niche markets with relatively small total addressable markets. Consequently, Halma enjoys a leading market share in many of the group’s product categories and may only have a handful of competitors in other areas. We believe the group’s strong emphasis on research and development, which accounts for 5% of sales, will allow Halma to maintain its market position through a combination of new product releases and product differentiation.

Narrow-moat Halma expects its full-year profit before tax to fall between GBP 353.1 million and GBP 369.6 million, which is slightly above our GBP 352 million estimate, but is not material enough to have an impact on our GBX 2,310 fair value estimate, which we reiterate. Additional quantitative details were light in the group's third-quarter trading update. However, the group has indicated that revenue growth is strong and order intake is ahead of the prior year, evidence of the resilient nature of customer demand for Halma’s products. The U.S. and Europe were highlighted as the largest contributors to revenue growth, offsetting declines in China. Shares appear marginally undervalued.

Having released a trading update five weeks prior, there were no surprises to narrow-moat Halma’s first-half performance that saw record half-year revenue and profit. Organic revenue grew 9.5% year over year reaching record levels, of which 4% was from price increases to compensate higher inflation. Revenue is expected to continue to progress during the second half of the financial year as order intake has continued to grow ahead of revenue, while its acquisition pipeline remains healthy, despite only two acquisitions having been announced during the first half of the financial year. Operating profit growth of 11% was largely composed of favorable currency movements and 2% organic growth. Shares are currently fairly valued to our GBX 2,310 fair value estimate, which we reiterate.

Halma’s industry-leading profitability is underpinned by acquiring small to medium-size businesses in niche markets with relatively small total addressable markets. Consequently, Halma enjoys a leading market share in many of the group’s product categories and may only have a handful of competitors in other areas. We believe the group’s strong emphasis on research and development, which accounts for 5% of sales, will allow Halma to maintain its market position through a combination of new product releases and product differentiation.

Narrow-moat Halma released a brief trading update, which is tracking in line with our expectations. Order intake for the first half is “strongly” above the previous year and is growing at a faster pace than revenue, which will provide useful visibility into the second half given a weaker economic outlook. Guidance of single-digit organic revenue growth and a profit margin, before tax, of approximately 20% was maintained and is in line with our forecasts. We reiterate our GBX 2,310 fair value estimate and view shares as slightly undervalued at current levels.

Narrow-moat Halma’s full-year results met our expectations, delivering impressive organic revenue and profit before tax growth of 17% and 15%, respectively, to reach record levels for the group. Bolt-on acquisitions remain a key component of Halma’s strategy, adding a further 1.7% growth (net of disposals) to profits during the financial year, as the group continues to expand and improve its niche product offering through a combination of tuck-in acquisitions and R&D. Shares are trading lower on the news that Andrew Williams will be retiring as CEO after 18 years in the role, having been an outstanding steward of capital for shareholders. His successor will be Marc Ronchetti, Halma’s current CFO. We believe the appointment from within the group will see little change to Halma’s disciplined acquisition process, and thus we maintain our exemplary capital allocation rating. We reiterate our GBX 2,310 fair value estimate and view shares as undervalued at current levels.

Following narrow-moat Halma’s record first-half performance, which saw management raise guidance, Halma revealed in a brief trading update that full-year performance is tracking in line with their expectations. Further sequential improvement in revenue during the second half is expected, following the impressive 23% organic growth achieved during the first half. As anticipated, profitability has reverted to more normalized levels following the return of discretionary costs and investments to support growth. Management expects profit before tax to be between GBP 301 million and GBP 313 million, which implies a second-half margin of roughly 20%, the midrange of the group’s target, compared with 21% achieved during the first half. We reiterate our GBX 2,310 fair value estimate. Shares have converged with our fair value estimate and are fairly valued.

Halma’s industry-leading profitability is underpinned by acquiring small to medium-size businesses in niche markets with relatively small total addressable markets. Consequently, Halma enjoys a leading market share in many of the group’s product categories and may only have a handful of competitors in other areas. We believe the group’s strong emphasis on research and development, which accounts for 5% of sales, will allow Halma to maintain its market position through a combination of new product releases and product differentiation.

Having recently upgraded full-year profit guidance during a September trading update, there were no major surprises from narrow-moat Halma’s first-half results. Record revenue and profit was assisted by a weak comparator contributing to organic revenue and profit growth of 23.2% and 31.7%, respectively. Nevertheless, revenue and profits are comfortably ahead of precoronavirus levels. Management did however, caution of a more normalized PBT margin in the second half of the year against 21% generated in first-half 2022. We maintain our GBX 2,200 fair value estimate. Shares are trading a P/E ratio of 49 times based on company-compiled consensus earnings, which we believe is excessive.

Narrow-moat Halma raised full-year guidance in a brief trading statement following a strong start to the first half of its financial year. The group expects full-year profit to be slightly ahead of previous guidance of low-double-digit organic constant-currency growth. We aren’t surprised by the revision and had baked a strong recovery into our expectations following a decline in organic sales in the prior year due to the coronavirus pandemic. We maintain our GBX 2,200 fair value estimate and view shares as fairly valued.

We are initiating coverage on Halma with a fair value estimate of GBX 2,200, narrow moat and Exemplary capital allocation rating. We believe Halma has carved out a narrow economic moat based on intangible assets and switching costs, which have supported industry-leading margins. Our fair value estimate implies an earnings multiple of 35 times, which is justified by Halma’s competitive advantages across defensive product categories and management's exceptional capital allocation track record. We view shares as overvalued, currently trading at record levels on an absolute and relative level.

Halma’s industry-leading profitability is underpinned by acquiring small to medium-size businesses in niche markets with relatively small total addressable markets. Consequently, Halma enjoys a leading market share in many of the group’s product categories and may only have a handful of competitors in other areas. We believe the group’s strong emphasis on research and development, which accounts for 5% of sales, will allow Halma to maintain its market position through a combination of new product releases and product differentiation.